FM's constituency financially included; without banks

Farm loans at four per cent, enhancement of credit target for the sector by Rs 1 lakh crore, and a reminder to banks to focus on small and marginal agri-borrowers were some of the sops that Finance Minister Pranab Mukherjee offered to the farmers—around 50 per cent of the population of India—under the spectre of financial inclusion in his budget proposals.

But perhaps his commitment to financial inclusion is best manifested in his constituency, Jangipur in Murshidabad.

Banks, insurance companies, tax offices, unique identification cards, income tax offices, credit camps, training for insurance agents and ATMs are few of the services that he has rolled out for the people of the district in the last two years. In a short, it’s a mall for financial services.

His speeches at the inauguration ceremony of these services, flanked by thousands of supporters, are generally crisp and pointed: take loan from banks and repay on time.

Yet, there are at least two dozen women in Behrampore, less than an hour away from his constituency at Jangipur, who seem to be ignoring finance minister's advice.

Instead of taking loans from banks, they believe in forming groups, some donning as treasurers, others as accountant, credit officers or recovery agents to Bandhan, one of the most active microfinance institutions (MFI) in Murshidabad.

MFIs’ business in Baharampur has been booming over the last one year, with all the top ones working in the town. Banks, on the other hand, are seeing stagnancy in business or even reduction in credit growth.

Consider this: Maitri is a group of 27 women at Baharampur—a town which has about 83 commercial bank branches—constituted by Bandhan. At nine in the morning, all the women in the group are on time for a credit meet, and most of them know the difference between reducing and flat rate of interest charged by MFIs.

Under reducing balance, interest is charged on balance outstanding, while under flat rate of interest, it is charged on the whole loan. MFIs have drawn flak from regulators and governments in the recent days on high rates of interest and coercive methods of recovery, prompting the government in Andhra Pradesh to severely curtail their operations through legislations. The repercussions were felt all over the country, with the Reserve Bank of India constituted panel recommending some tough measures for the sector.

But the women in Maitri have a different tale to say. “Banks ask for security deposits. Also, if husbands default on a loan, even the wife will have to share the burden. Bandhan is like a family. If one member is unable to pay loan, others help her,” says Nandita Sarkar, a credit officer at Maitri.

Sarkar’s story defines the reason behind the phenomenal success of MFIs in India over the last decade. Need-based financing of small ticket size and self-imposed credit discipline has helped MFIs to flourish.

Incidentally Sarkar acts as a credit officer in the group and as advisor to Bandhan in inducting new clients. She is now planning to take an education loan, a newly product from the Bandhan stable, for her daughter.

Unlike commercial banks, Bandhan's education loans are targetted at parents of school-going kids, who do not have money for buying books or uniforms. The ticket size is as less as Rs 1,000.

“We know even if we don't get to eat, we will have to repay our loans,” says Malati Ghosh, also member of Maitri.

There are hordes of examples like Sarkar and Ghosh. Bandhan has helped Krishna Choudhury elevate from a tea vendor to a shop-owner. While Shakuntala hopes that her daughter becomes a credit officer at Bandhan in the not too distant future.

Curiously, though, there are a lot of apprehensions about banks. The Maitri women apprehend that if they take a bank loan, they might end up in a debt trap.

Unsurprisingly, the figures reflect the scenario. In spite of the proliferation of banks, the credit to deposit (CD) ratio in Murshidabad has declined from 47 per cent as in March 2009 to 42 per cent in March 2010, according to data available on the State Level Bankers committee, West Bengal, website. This is less than the overall CD ratio of banks in West Bengal, which has remained 64 per cent in the last two years.
“When a large number of bank branches are opened in a particular area, initially only deposits grow. Credit growth should happen gradually,” S L Bansal, executive director, United Bank of India, the SLBC convener bank in the state, explains.

In stark contrast, Bandhan, the fourth largest MFI in the country, has seen an impressive credit growth of about 66 per cent over the last year in Murshidabad, so far, with advances growing by almost Rs 120 crore over the last year.

While State Bank of India, the largest public sector bank, saw a near-flat growth in advances at Rs 75 crore till January this year, in Murshidabd, against Rs 100 crore for the whole of last financial year. Last year's figures for SBI's growth in advances till January at Murshidabd, however, were not available.

At Bangiya Gramin Vikash Bank, a regional rural bank headquartered in Murshidabad, too, there was hardly any credit growth over the last two years, a bank officer said.

Bankers in Murshidabad said that the profusion of banks in the few pockets, the competition to tap customers had intensified. Moreover, with no major industry coming in the area, the demand for credit was almost stagnant. As a result credit growth was taking a hit, but deposits were growing.

At Jangipur alone, there are about 58 bank branches, or a little more than 20 per cent of the total bank branches in Murshidabad, which equals to the total number of Bandhan offices in Musrhidabad. The district has about 289 bank branches, and around 50 were opened between April 2010 and February 2011.

Incidentally, Musrhidabad also has one of the largest concentrations of chit fund houses in the state. A large amount of money generated from income by small businesses goes to such funds.

“We ourselves ask women here to keep their savings in banks, but instead of banks they prefer chit funds,” said Milton Saha, a regional officer of Bandhan at Murhsidabad.

Bandana Ghosh, treasurer of Maitri throws up a reason behind the apathy towards banks: Banks have been opening branches here, but women should steer clear from politics.